Juvan's Health Law & Private Equity Report : Corporate & Health Care Lawyer & Attorney : Jayne Juvan : Benesch Friedlander Law Firm : Private Equity, Corporate Governance

Closer to the beginning of the recession, at health care investing events, many health care deal makers spoke a common theme – the downturn would have little impact on health care services companies, as consumers will not delay or forgo medical treatments. After all, many health care services are necessary, much unlike other discretionary items such as a fifty-inch flat screen television set or that convertible at a family vacation house used only part of the year.  Consumers will put off the latter, not the former, and reimbursement concerns, not recession related concerns, would continue to take center stage.

But this recession has impacted industries in ways never thought possible, and health care is no exception. In a recent post, Kristen Gerencher of Marketwatch’s Health Matters blog cites two studies suggesting that consumers have cut back on care and are delaying payments to providers for treatment received. 

 

The American Academy of Family Physicians study indicated that nine out of ten members reported patient concerns over the ability to pay medical bills, and six out of ten reported a rise in appointment cancellations. Additionally, delaying preventive care has created a surge of more expensive procedures needed to treat health problems. Providers have also seen an uptick in charity care and have been forced to discount fees.

 

Raleigh Durham-based Sageworks also reported delayed payments to providers. For example, home health agencies are, on average, waiting 34 days to receive payment, up from 30 days. The drop in household income makes it difficult for consumers to pay medical bills timely. 

 

Unfortunately, the data suggests that this downturn is indeed different for health care companies.  Thus, some health care portfolio companies could potentially struggle – or already are struggling – from the downturn in ways that industry experts previously did not anticipate.   

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• Pfizer / Wyeth Transaction.  On January 26, 2009, Pfizer and Wyeth announced that they entered into a definitive merger agreement.  The agreement calls for the acquistion by Pfizer of Wyeth in a cash and stock transaction.  In connection with the transaction, Pfizer announced that the Federal Trade Commission has made a second request for information pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 regulatory process.  Presumably to resolve post-merger integration concerns, Pfizer also announced today the planned leadership and organizational structure for research and commercial operations.  The company's research structure will have two distinct research organizations - The PharmaTherapeutics Research Group (with a small molecule research focus) and The BioTherapeutics Research Group (with a large molecule research focus), and the company will have nine diverse business segments. 
• Private Equity to Have "Obama" Focus?  The Chicago Tribune reported on an Association of Corporate Growth meeting that questioned whether the private equity industry will experience an "Obama" effect.  The Tribune reported that, among other industries, health care will likely be a focus given the stimulus package.  Indeed, the American Recovery and Reinvestment Act of 2009 (the "Stimulus Bill") makes certain health care companies an attractive investment, as it sets aside $53 billion specifically for health care, along with non-specific spending bringing the total closer to $150 billion.  The Stimulus Bill provides over seven million unemployed Americans and their families with a 65% tax credit for COBRA premiums for up to nine months and gives unemployed workers who failed to elect COBRA coverage within the applicable time frame a second chance to elect coverage.  The Stimulus Bill also provides an estimated $87 billion to states over the next 27 months in the form of a temporary increase in the Federal Medical Assistance Percentage.  While by no means a long-term fix, at least temporarily, these two measures are likely to shore up utilization and stabilize revenues where there may otherwise have been a more considerable decline. The Stimulus Bill also provides incentives for the adoption of health information technology and for clinical preventative services and community-based prevention programs.  

 

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As the White House transition from the Bush administration to the Obama administration begins in earnest, the current economic climate has caused attention of many, including those in both administrations, to shift away from health care reform to repairing the broken financial sector, bailing out the big three automakers and stopping the bleeding caused initially by the subprime mortgage crisis.  While many are distracted on reacting to current crises, Steve Forbes continues to strive to be ahead of the curve (as he often does, in my opinion) and has remained focused on some of our other pressing concerns, including health care  reform (Forbes magazine also recently did a noteworthy piece on energy - another critical area of concern but that is no longer front and center on the mainstream agenda in light of recent events and declining oil prices).

In the December 22, 2008 issue of Forbes, Forbes states that "[t]he key to bringing health care costs under control is not cutting back on the quality of care but changing the way that we finance care."  Forbes suggests that patients, not other third parties, should be in control of their health care dollars, especially because, "[w]hen there's a disconnect between providers and consumers (patients, in this case), productivity and innovation suffer."  He cites to private pay procedures as being a leading indicator of what happens when patients control their own funds.  For example - the cost of Lasik surgery has declined over the years by roughly 50%.

Regardless of whether you agree with Forbes on his health care reform position - whether it's in the health care space or energy - unlike others, Forbes conveys a sense of urgency and that positive changes in energy and health care sectors are needed now so that we ward off calamity similar to the one we've seen in the financial services space.

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The appearance of the typical patient in the 21st Century departs significantly from that of the average patient in the 20th Century.  These days, many patients visit their medical providers armed with diagnosis and treatment options in one hand, and pricing information kept secret for years in the other--most of which is information obtained from a slew of sources on the internet.  Individuals from all ends of the spectrum have come together to discuss the pros and cons of these "brainsuckers" (a phrase coined by Dr. Scott Haig for those patients who research their symptoms).  By all accounts, it seems that the United States Congress will take the opportunity to chime in on the debate, too.

An article published by American Medical News  entitled "Bill Aimed to Improve Health Literacy," caught my attention today because it discussed legislation introduced in the United States Senate directed to further educate consumers about their health.  S.2424 aims "to ensure that all Americans have basic health literacy skills to function effectively as patients and health care consumers." 

According to American Medical News, the legislation, if passed, "would establish a health literacy implementation center to gather and disperse information and to devise national improvement strategies." The center would be charged with the development of a health literacy curriculum for elementary and secondary schools, colleges and adult education programs.  According to the article, the American Medical Association backs the legislation.

I'm generally a proponent of the educated consumer and believe that there could be far-reaching benefits to the legislation.  Given the lively debate on these issues, however, I'd be interested in hearing the opinions of others who disagree.

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The Healthcare Update News Service has made available a presentation entitled "Business Strategy in the Medicare Market: The Wall Street Perspective."  The presentation was given at the Medicare Congress in October 2006 by three individuals deemed to be a few of Wall Street's finest health care analyists, including:

• Charles Boorady, Managing Director, Citigroup Investment Research, New York, NY;
• Benjamin Edmands, Principal, JP Morgan Partners LLP, New York, NY; and
• Christopher McFadden, Healthcare Analyst, Goldman Sachs, New York, NY.

The panel discussion focused, at least in part, on investments in the health care sector, valuation of health care businesses and whether you can "trust the government as a partner," whether the government will pursue a single payer system, and insight into Wall Street chatter about the health care sector.  The speakers also touched on issues affecting the pharmaceutical industry, including Medicare Part D.

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FDA News reported last week that Michael Leavitt, the Secretary of the Department of Health and Human Services, speaking at the annual PhRMA board meeting,recommended that the United States health care system be modeled after Medicare Part D, calling the new prescription drug program a "resounding success."  Specifically, Leavitt asserted that competition and quality standards should control and that consumers should have the ability to compare prices.  Moreover, experts "should establish an average price for an episode of care--a combination of procedures that a patient may need."

Leavitt is correct in stating that Medicare Part D has been a success and that competition has driven prices down significantly.  In theory, modeling the entire health care system against Medicare Part D sounds promising.  Nevertheless, Medicare Part D has been criticized because the program's complexity requires that seniors have assistance from someone with significant knowledge of the intricacies to enroll and therefore is a barrier to those who have insufficient resources.  At least arguably, this complexity may only be exacerbated if the same formula is applied to the entire health care system.  While Medicare Part D could serve as a starting point for think tanks, it seems premature to have the program serve as a model for the entire health care system. 

 

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Generics--Drug Sales--Quality of Care

Here's a look back at a few noteworthy stories from last week...

• Biotech Generics.  Last week, FDA Commissioner Andrew von Eschenbach delivered a blow to makers of generics when he noted that generic versions of biotech drugs, which are generally more complex than chemical-based drugs and therefore more difficult to copy, will only be considered "similar" to brand name drugs.  As reported by the Washington Post, von Eschenbach stated at the PhMRA annual meeting, "We recognize that the end point would be what could be best described as similarity. Similarity in the sense that when a doctor gives you the product _ delivered it to a patient _ it will achieve an effect that is similar to the effect that we expected from the innovative . . . compound."  While the FDA is developing guidelines to evaluate generic versions, the Generic Pharmaceutical Association pointed out that the FDA does in fact have the "scientific knowledge to approve knockoffs, just as it now can sign off on the changes made by brand-name biotech companies in how they produce their drugs." 
• Drug Sales Increase in 2006.  IMS Health reported a 8.3% increase in drug sales last year and projects growth by 6-9% through 2010.  Diana Commy, corporate director, IMS Market Insights, commented on last year's growth by saying, “This growth was driven by factors that include an aging population and the introduction of the Medicare prescription drug benefit, which increased prescription coverage to the previously uninsured and underinsured, and provided generous plan benefits to seniors.” 
• JAMA Highlights Health Care Access and Quality of Care Issues.  On Wednesday, as reported by the Kaiser Family Foundation, the Journal of the American Medical Association published articles discussing access to health care and quality of care.  Here's a few of the conclusions reached in the articles:
  • "Patients without health insurance are less likely to receive treatment after injuries or diagnoses of chronic diseases."
  • "Patients in many cases do not receive necessary follow-up care, regardless of whether they have health insurance."
  • "Physicians should work in teams and measure the quality of care provided to patients to help reduce costs and reduce other problems in the U.S. health care system."
  • Spending on emergency care for recent documented and undocumented immigrants accounted for less than 1% of the North Carolina Medicaid budget annually between 2001 and 2004."

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Last week, I visited Orlando, Florida for the American Health Lawyers Association Long Term Care in the Law Conference.  This week's Health Law Recap will focus on a few themes and trends identified at the Conference. 

• Shift in Long Term Care Reimbursement.  Leslie Norwalk, the Acting Administrator for the Centers for Medicare and Medicaid Services (CMS), focused on the increased pressure on the federal government resulting from the health financing crisis.  In response, federal reimbursement for long term care will shift in favor of home health agencies and away from skilled nursing facility care.
• Employee Education About False Claims Act.  Many attorneys expressed to representatives of CMS that there continues to be substantial and noteworthy ambiguities in connection with the Deficit Reduction Act employee education requirements.  One attorney noted that the requirement applies to an entity that has less than 5 million dollars in Medicaid payments if the entity is affiliated with other entities that receive 5 million or more in such payments.  Representatives for CMS have promised that further clarification will follow shortly.
• Plaintiffs' Lawyers Use Web Sites, E-Mail Addresses to Pierce the Corporate Veil.  There has been a strong trend for parent companies who acquire nursing home facilities to form separate subsidiaries to act as holding companies and operating companies for each nursing facility acquired.  One prominent defense attorney noted that plaintiffs' lawyers have begun to cite to web sites and e-mail addresses to build a case for veil piercing.  The lawyer cautioned that employees in each separate company should have different e-mail addresses. For example, if the parent company is named "Health Care Solutions, Inc.," one subsidiary is named "Brecksville Health Care Solutions, Inc."  and the other is "Madison Health Care Solutions, Inc.," the employees at the parent and both subs should not have their e-mail address as "employeename@healthcaresolutions.com."  Instead, the following e-mail addresses would help to show that the three entities are separate legal entities:
  • Parent Company:  employeename@healthcaresolutions.com
  • Brecksville Health Care Solutions, Inc:  employeename@brecksvillehealthcare.com
  • Madison Health Care Solutions, Inc:  employeename@madisonhealthcare.com

In addition, the attorney noted that legal counsel should review a company's web site and that the web site should clearly state that each facility is owned by a separate legal entity.

• Medicaid Fraud Enforcement Is on the Rise.  Many representatives of the federal government emphasized that, in the upcoming years, the government will have increased budgets to implement Medicaid fraud controls and pursue Medicaid fraud investigations.  In the past, Medicaid has not received the same scrutiny as have other federal health care programs. 

 

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The Kaiser Family Foundation has made available a webcast entitled "The Future of Medicaid:  Is It Sustainable, and Should It Be Reformed?"  The webcast features the following speakers:

John Iglehart Founding Editor, Health Affairs National Correspondent, New England Journal of Medicine Session Moderator

David Rousseau, M.P.H. Principal Policy Analyst, Kaiser Family Foundation's Commission on Medicaid and the Uninsured Director, statehealthfacts.org

Richard Kronick, Ph.D. Professor and Chief Division of Health Care Sciences University of California, San Diego

John Holahan, Director, Health Policy Center, Urban Institute

Alan Weil, J.D. Executive Director National Academy for State Health Policy

Jean Lambrew, Ph.D. Senior Fellow, Center for American Progress  Associate Professor for Health Policy, George Washington University

Howard Cohen, Attorney HC Associates

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On Saturday, President Bush previewed a plan to provide a financial incentive to Americans to purchase health insurance during his weekly radio address.  Bush stated, "Today, the tax code unfairly penalizes people who do not get health insurance through their job.  It unwisely encourages workers to choose overly expensive, gold-plated plans.  The result is that insurance premiums rise and many Americans cannot afford the coverage they need." 

As reported by the Washington Post, Bush's plan would "add a new tax on employer-provided health-care plans worth more than $15,000 to subsidize those who buy modestly priced plans out of their pockets."  Bush also hopes to provide Medicaid waivers that allow states to shift Medicaid funds away from nursing homes and hospitals instead grant funds to individuals so that they can purchase health insurance.  Bush is expected to provide further details of his plan in his State of the Union Address on Tuesday evening.

Commenting on the proposal Post writer Michael A. Fletcher states that Bush's most recent proposal is his "most ambitious attempt to address the health-care crisis." 

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Last week, a coalition of sixteen organizations put forth a plan that would provide health insurance coverage for half of America's nearly 47 million uninsured.  According to a press release issued by the Health Coverage Coalition for the Uninsured, the proposal was developed over a two year period. 

The plan proposes providing easier access to SCHIP and Medicaid programs for parents so that they may enroll their children when they simultaneously apply for other assistance programs, such as low cost lunches and food stamps.  Additionally, tax credits for those who earn up to three times the poverty level (or $60,000 for a family of four) would be available.  In addition, states would receive additional funding to enroll additional children and there would be a competitive grant program that would award funds to states that develop innovative approaches to expand coverage.

The second phase of the program expands Medicaid eligibility for adults and creates a refundable credit to help individuals pay for private insurance. 

The coalition organizations include the following:  AARP, American Academy of Family Physicians, American Hospital Association, American Medical Association, American Public Health Association, America's Health Insurance Plans, Catholic Health Association, Families USA, Federation of American Hospitals, Healthcare Leadership Council, Johnson & Johnson, Kaiser Permanente, Pfizer, Inc., United Health Foundation, U.S. Chamber of Commerce and Search for Common Ground-U.S. Consensus Council.

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A study conducted by the Kaiser Family Foundation and the Harvard School of Public Health found that 56% of seniors enrolled in a Medicare prescription drug plan have a favorable impression of the drug benefit.  Continue Reading...

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Benesch Friedlander Coplan & Aronoff, LLP announced today that Jayne Juvan's podcast entitled "Blogging for Lawyers" will air on DJ Flash Ferenc's radio show this Saturday morning between 10 and 11 a.m. on WERE.  Make sure to tune in! 

Benesch's podcast series "The Benesch Beat" was developed by Mark Avsec, an Intellectual Property lawyer at Benesch who is known for being a former keyboardist for Wild Cherry and a Grammy nominee for the hit song "Play that Funky Music, White Boy." 

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On Tuesday, the National Labor Relations Board ("NLRB") rendered three decisions that clarified the test applicable to determine whether an individual qualifies as a "supervisor" or an "employee" under the National Labor Relations Act ("NLRA").  One of the NLRB's decisions in particular has left many nurses outraged. 

Under Section 2(11) of the NLRA, the term "supervisor" includes "any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment" (emphasis added).  The distinction regarding whether an individual is a supervisor or an employee under the NLRA is a meaningful one because, while employees have the right under the NLRA to collectively bargain, supervisors do not have the same rights and protections. 

Until these three decisions were handed down, the NLRB rather narrowly construed the term "supervisor."  In a 2001 United States Supreme Court decision, NLRB v. Kentucky River Community Care, 532 U.S. 706 (2001), the Court addressed the status of similar types of employees and criticized the NLRB's interpretation of the term "independent judgment."  The NLRB has now seized upon the opportunity to clarify its interpretation of the phrase "independent judgment" and at the same time also altered its interpretation of the terms "assign" and "responsibility to direct."   

In Oakwood Healthcare, Inc., 348 NLRB No. 37 (Sept. 29, 2006), the NLRB held that charge nurses employed by an acute care hospital executed supervisory authority within the meaning of Section 2(11) of the NLRA because they assigned responsibilities to other nurses and exercised independent judgment in making such assignments.  Specifically, the charge nurses in Oakwood independently exercised their own judgment in "assigning nursing personnel to patients."  The NLRB did, however, distinguish between these nurses and rotating nurses, holding that, because the rotating nurses in this case did not exercise supervisory authority a substantial amount of the time, they were properly characterized as employees under the NLRA. 

The NLRB stated that "assign" means to designate "an employee to a place (such as a location, department or wing), appointing an individual to a time (such as a shift or overtime period), or giving significant overall duties, i.e. tasks, to an employee . . . and refers to the . . . designation of significant overall duties to an employee, not to the . . . ad hoc instruction that the employee perform a discrete task."  An individual has the "responsibility to direct" other employees if the individual "decides what job shall be undertaken next or who shall do it," as long as the individual is also "responsible" and carries out the tasks with "independent judgment."  Finally, an individual exercises "independent judgment" if the individual exercises judgment that is not controlled by another authority and if the degree of discretion arises above the "routine or clerical."

The NLRB has applied this new interpretation in two companion cases.  In Croft Metals, Inc., 348 NLRB No. 38 (Sept. 29, 2006), the NLRB held that lead persons at a manufacturing plant were not supervisors because their employer retained so much control over their decisions that the direction they gave to other employees was simply routine and clerical.  Similarly, in Golden Crest Healthcare Center, 348 NLRB No. 39 (Sept. 29, 2006), the NLRB concluded that the charge nurses at issue were not supervisors because they did not have the authority to assign tasks to other nurses, to require other nurses to stay beyond their shift or to call in off-duty nurses.  Moreover, the annual rating of these nurses based upon their ability to direct other nurses was insufficient to establish that these nurses were actually accountable for the job performance of other nurses.

Many nurses have already begun to revolt against this new interpretation.  The Sacramento Business Journal reports, for example, that over 30,000 nurses have signed pledges promising to strike if their employers attempt to exploit the decision. 

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Make sure to obtain your copy of the October 2006 issue of Inside Business, which offered an article about Juvan's Health Law Update (see page 20).  The latest issue also included many other interesting articles, such as an article about Jack Landskroner, an attorney who brought a class action suit on behalf of plaintiffs who were injured when they had medical procedures performed that included the use of illegally harvested tissue, bones and organs, and a write-up on Dr. Delos "Toby" Cosgrove, the CEO and President of the Cleveland Clinic.

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The Food and Drug Administration ("FDA") recently announced that it entered into an agreement with the Massachusetts Institute of Technology to develop a new safety monitoring system designed to more quickly identify problems with drugs and medical devices. The Associated Press reports that this new system will "scour federal and private health care databases in real time for unusual and emerging patterns that could indicate potential safety concerns." In further attempt to improve patient safety, the FDA also intends to regularly issue reports to physicians that inform them of potential risks associated with drugs and devices.

Currently, the FDA manually assesses reports submitted voluntarily. The FDA has stated that this safety monitoring system leaves many known problems unreported.

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